Housing | Summer 2025
From interest rates to inventory, see what’s driving Texas residential real estate.
Over the past few years, the U.S. housing market took a markedly different trajectory than the broader economy. It underwent a sharp downturn in 2022 and 2023 with declining home sales and a slowdown in new construction as interest rate hikes took effect to combat inflation. By 2024, conditions had largely stabilized, yet affordability remains a significant challenge, particularly for first-time buyers and moderate income households.
Texas’ housing market stabilized with a resurgence in new construction, rising home sales, and steady prices. New housing starts jumped 26 percent between 2023 and 2024, per Dodge Construction Network, while sales climbed slightly higher and recorded a few thousand more transactions. Meanwhile, home prices across the state rose nearly 2 percent.
First quarter 2025 saw more steady home price appreciation but declining sales. With mortgage rates hovering between 6.5 and 7 percent, sluggish home sales remain a persistent reminder of ongoing affordability challenges. High mortgage rates have disproportionately impacted first-time and moderate income homebuyers due to limited savings and a more significant reliance on mortgage financing.
The 2024 recovery in home sales was led almost exclusively by surging sales of high-end homes, as sales of more modest homes remained down or flat (Figure 1). The disparity continued into 2025. In 1Q2025, home sales declined across all price tiers except for million-dollar properties. Sales dropped 3.8 percent for the under $300,000 price segment and were down 5.9 percent for the $300,000 to $400,000 price segment. Luxury homes remained in high demand, posting a robust 11.4 percent increase as nearly 44 percent of buyers paid all cash last spring, according to Redfin.
Meanwhile, the active inventory (new and existing homes) of lower-priced homes is increasing rapidly, reflecting disproportionately weaker demand from lower or moderate-income homebuyers (Figure 2). Inventory for properties listed below $300,000 surged nearly 50 percent year-over-year in spring 2024 and has since continued to climb at an accelerated pace through March 2025. Inventory growth in the higher-price segment has been relatively more gradual in comparison, as demand for expensive homes remains strong.
High mortgage rates are straining overall buyer affordability while intensifying the affordability crunch for modest-income homebuyers. Demand for starter and modest homes ($300,000 and below) is expected to remain disproportionately weak under current mortgage rate conditions, suppressing overall sales and exerting downward pressure on home prices.
Homebuilders and sellers may respond by increasing incentives such as rate buydowns, down-payment assistance, closing cost contributions, or other financing options to attract buyers. In fact, builder incentives have likely made all the difference between a strong first-quarter performance by new home sales and a declining quarter in existing home sales, as indicated by national data. Sellers of existing homes, particularly those who purchased the property at the market’s peak, may be slow to adjust their pricing to reflect current conditions. However, that may change in the coming months.
Yanling Mayer, Ph.D. ([email protected]) is a research economist with the Texas Real Estate Research Center.
